Israel’s cabinet has approved a cap of 40 per cent on the country’s natural gas exports but the policy is expected to provide enough flexibility for
Woodside Petroleum
to pursue its LNG ambitions through its $US1.3 billion Leviathan deal.

The limit is lower than the export allowance of at least 50 per cent that Woodside expected when it struck a potential $US1.3 billion deal last December with Noble Energy to buy a stake in Israel’s large Leviathan gas field in the eastern Mediterranean Sea.

Howeve,r the policy is understood to apply across the totality of Israel’s gas resources and the quota is thought to remain at 50 per cent for Leviathan specifically, according to sources.

Woodside is yet to complete its transaction with US player Noble Energy to buy a 30 per cent stake in Leviathan. While the deal was due to conclude by June 30, that has been looking increasingly unlikely given the delay in the government announcing its gas export framework.

A Woodside spokeswoman on Monday reiterated the company’s position that it “looks forward to considering the detail of the gas export policy".

Heated debate over Israeli gas exports

A statement from Mr Netanyahu’s office released on Sunday Israel time said the cabinet approved a decision to increase the volume of gas available for the Israeli economy to 540 billion cubic metres, representing at least 25 years’ supply.

Related Quotes

Company Profile

“We will lower the cost of living in the electricity sector via the gas that will flow into the Israeli economy, and we will invest in the public welfare thanks to the profits that will go into the state coffers from gas exports," Mr Netanyahu said in the statement.

“Any delay in implementing this decision will endanger the state’s ability to realise the benefits of our gas resources. Gas must not stay in the ground under layers of bureaucracy and populism."

A recommendation last year by a government-appointed committee was to allow 53 per cent of Israel’s gas to be shipped overseas.

The issue of gas exports has raised heated debate in Israel, with some wanting all Israel’s gas resources to be reserved for local use.

Mr Netanyahu said last week that exporting 40 per cent of gas resources would yield export revenues of $US60 billion over 20 years.

Energy Minister Silvan Shalom took to Twitter to express his support for the increase in the share of gas reserved for domestic use to 60 per cent from 50 per cent.

He said the 60:40 split was the “correct balance" that ensured at least 30 years of gas supplies for Israel.

“I had recommended and the decision was made today: the government will maintain energy independence, not worry about saving gas for future generations, will reduce the cost of living and promote the economy," the minister tweeted.

Geopolitically important for regional relations

Roi Feder, managing director of business strategy firm APCO in Tel Aviv, said the final formation of the export policy could still be delayed because of a push by some members of parliament to have it ratified by the Knesset, rather than by the government.

“That could stall the final decision by a bit," he said.

Mr Feder said it was still possible the export quota could be trimmed back from 40 per cent, but only slightly. He said Israel saw its ability to export gas as geopolitically important to strengthen relations with Turkey, the Palestinian authorities, Jordan and, potentially, Cyprus.

Leviathan is estimated to hold 19 trillion cubic feet of gas, so the 50 per cent export quota believed to apply to that resource would allow 8.5 tcf of gas to be exported, about enough to support a two-train LNG project.

But Mr Feder said he believed a large-scale LNG project in Israel was unlikely because of the high costs of building the huge infrastructure required, and lengthy approvals and appeals process. He said Israel was keen to see a gas pipeline developed that would ship gas to Turkey, and could also consider a smaller floating LNG project.

The Israeli transaction has taken on extra significance for Woodside since the company shelved its $45 billion Browse LNG project in Western Australia, leaving it short of growth options. In December, chief executive Peter Coleman foreshadowed a potential final investment decision before the end of 2013 for a domestic gas project at Leviathan, with an LNG export venture targeted for later in the decade.